Why Increasing Savings Rates Remains Key in South Africa
South Africans simply do not have the ability or capacity to save according to a study. Yet savings remain key for growth. We chat to an Uber driver to get some perspective on this enigma.
Published: Friday, July 22nd 2016
Taking an Uber from Cape Town international airport with a colleague after a recent financial conference, we get chatting to our driver. His 10-year old daughter wants to study medicine, and therefore, he is running both an Uber and a staff transportation business, working at least 18 hours a day to save money for her superior schooling and eventual medical studies.
“She knows what she wants, and what sort of parent would I be if I did not save the money to make her dreams possible,” Eric questions while telling us his admirable story.
This is not a man who is racking up store accounts and buying the latest BMW to live in short term splendor. Eric is one of very few South Africans who understands the value of savings.
Laying the foundations for a better future
Saving, in essence, is defined as future spending. But the term future is key here. In the present, you have income and you have the ability to produce this income. There is no guarantee that you will possess either of these opportunities in future.
The very process of saving, which is slow and steady, in addition to requiring discipline and dedication, in turn, indicates that your future spending will be done with due consideration of the consequences. In short, it’s a lot easier to spend the bank’s money today than your own hard-earned cash tomorrow.
The savings enigma
Reducing consumerism and bolstering domestic savings remains a key objective for major private investment institutions and National Treasury alike. This goal, which has arisen owing to a steady regression in savings rates since the early 1990s, informs a significant portion of the national budget.
In fact, domestic savings are just as essential as foreign direct investment in order to improve the national balance sheet and boost economic activity. As a result, tax-free savings accounts and greater retirement incentives are just some of the ways that government is trying to encourage a saving rather than a spending culture.
The private sector is also heavily involved because if they are able to invest more of their client’s money, they will also reap the benefits of steady investment returns alongside their clients.
As an example, Investec has partnered with the Gordon Institute of Business studies at the University of Pretoria in order to produce a national savings index and reveal by how much we are missing the mark.
Working on a benchmark of 100, the 2015 index produced a score of under 64 per cent, showing that South Africa is only two-thirds of the way to achieving its minimum savings goals.
“If the South African economy is to achieve elevated and sustained growth that translates into social inclusion and development, it is a necessary condition that the country closes this gap,” said Dr. Adrian Saville, professor in economics and competitive strategy at GIBS and chief strategist at Citadel.
No extra to put away
However, a study by Standard Bank in relation to the Investec GIBS savings index recently revealed that many South Africans simply do not have the ability or capacity to save. Only 5.5% of South African households – those within the three highest income brackets – potentially have the ability to save each month according to the findings of the Standard Bank Consumer Affordability report.
This is exemplified by Eric’s case study, where in order to achieve his daughter’s goal, working one job for 8 hours a day simply isn’t cutting it.
René Grobler, head of Investec Cash Investments concludes that the trend in the index emphasises that all stakeholders in society need to pay attention to the very real deficit that we have in our savings environment. The call to action is not just for the policymakers to give us more tax breaks. We need to urgently find ways to create more income and jobs and being responsible and prudent about spending or saving money that is created. It’s about resisting instant gratification and instead, thinking about the future according to Grobler.